To outsiders, it was clear that a bold step was needed. Two years of denials, at best half-truths – and an astonishing week of hacking revelations, advertising protest and public disgust – had left Rupert Murdoch's News Corporation battered.

Until now, News Corporation had simply trailed events, making admissions or disclosures only after it was forced to do so, and even then at a painfully slow rate. Looking ahead, there seemed to be no end in sight – and the UK's biggest newspaper publisher was losing the few remaining friends it had.

The step that might have expected, though, was a sacking or a resignation – the departure of News International chief executive Rebekah Brooks. But she appeared determined to cling on. It is unclear whether her removal would have stopped the public criticism of News International and its Sunday tabloid, but it would have helped.

James Murdoch made a different choice today. He did not ask Rebekah Brooks to leave, taking the more dramatic step of ordering the closure of the News of the World, putting 200 jobs on the title at risk and ending the "clean-up" editorship of Colin Myler in an instant.

News Corporation insiders say that the idea of closing the News of the World had been canvassed internally for some weeks; the company may not have conceded much externally, but it has been scenario planning for some time. James Murdoch, others said, had been wanting to "show that he was serious about getting to the end of this" – while Rupert Murdoch wanted to leave his son and likely successor in the driving seat, rather than appear that he didn't trust his son's judgment in a corporate crisis.

What changed everything was clearly Monday's revelation that during Rebekah Brooks's editorship, journalists on the newspaper were involved in the hacking of the voicemails of the journalists of the murdered schoolgirl Milly Dowler. That took the story to the top of the BBC bulletins, with commentators such as Nick Robinson saying the hacking story was no longer "regarded the story as a question of interest only to those excited by media ethics or the privacy of celebrities".

The view at the company – at least yesterday – was that something like the Dowler story was going to happen eventually. A few weeks ago, when the first reports emerged that the Soham parents had been targeted, triggered a minor crisis internally. But that story didn't take off in the way that Monday's story in the Guardian about Milly Dowler did, with its shocking detail that when messages on Dowler's phone were deleted by the News of the World, it gave her parents false hope that she was alive [see footnote].

The Dowler news triggered two other crucial developments. The Labour party, which until Wednesday, was cautious about attacking News International specifically over the hacking issue, turned unequivocally hostile, with Ed Milliband openly demanding the resignation of Brooks in prime minister's questions. And while News Corporation may have backed the Conservatives in the last election, the open opposition of Labour – and the linking of the hacking issue to the almost completed bid for BSkyB – was positively undesirable.

At the same time, two newspapers, the Daily Telegraph and the Daily Mail, finally decided to take the phone-hacking story seriously in the wake of the Dowler revelations. Until then, it was the Guardian – the newspaper that broke the original hacking story – which followed every development, with the Independent, the Financial Times and the BBC. But the high-circulation rightwing press and the tabloids remained relatively silent.

However, Telegraph editor Tony Gallagher felt the moment had come to splash on the hacking story for the first time on Tuesday, following up again on Wednesday and today, highlighting that 7/7 victims and dead soldiers may have been targeted, while the latter story also led the Mail this morning. With rivals now piling in, News International was facing the prospect of damaging revelations not by the week or day, but by the hour, with no sign of them ending.

There was also mounting speculation that further arrests were imminent. The Times, a News International title, felt confident enough to splash with the news that "five journalists and newspaper executives" suspected of involvement in the hacking scandal "are expected to be arrested within days" – a clear hint that the saga would darken even further.

Those close to James Murdoch said that he took the closure decision "very recently" and the company felt it had little choice to make an annoucement to staff today. Brooks was closely involved in the decision-making process – while News of the World editor Colin Myler clearly wasn't – and James Murdoch was once again clear that Brooks retained his confidence, saying "I am satisfied that she neither knew of nor directed those activities".

However, for many, both inside Wapping and without, there was a growing feeling that the newspaper and its journalists had been sacrificed to atone for the mistakes of others. David Wooding, the title's political editor, was outspoken on BBC News, saying "Decent and hard-working journalists are carrying the can for the sins of the previous regime", while one wag on Twitter put it more simply: "Brooks or NoTW? Murdoch's ditched the wrong red-top."

• The following was published on 12 December 2011 in the corrections and clarifications column: An article about the investigation into the abduction and death of Milly Dowler (News of the World hacked Milly Dowler's phone during police hunt, 5 July, page 1) stated that voicemail "messages were deleted by [NoW] journalists in the first few days after Milly's disappearance in order to free up space for more messages. As a result friends and relatives of Milly concluded wrongly that she might still be alive." Since this story was published new evidence – as reported in the Guardian of 10 December – has led the Metropolitan police to believe that this was unlikely to have been correct and that while the News of the World hacked Milly Dowler's phone the newspaper is unlikely to have been responsible for the deletion of a set of voicemails from the phone that caused her parents to have false hopes that she was alive, according to a Metropolitan police statement made to the Leveson inquiry on 12 December.